Wine War

Savvy New World marketers are devastating the French wine industry

It's a picture postcard of La Belle France: sun-drenched stone houses perched on a hillside, a soaring Gothic church spire, ripening vineyards. Quinsac, population 1,866, is nestled in the heart of Bordeaux, only a few miles from famed winemaking centers such as Château Latour and Château d'Yquem, whose prized red and white wines fetch $200 or more a bottle.

But even if September provides a bumper harvest, Quinsac's winegrowers won't be celebrating. Almost all their grapes will be turned into low-end Bordeaux that sells for less than $5 a bottle in France. Over the past three years, the price of many of their grapes has plummeted by 40%. In Quinsac, where Romans first planted vines and a poem inscribed on a fountain salutes "our wine that soothes the mind," vines are being pulled out to make way for a housing development.

Sadly, Quinsac's bitter harvest is shared by much of France's wine country--from the hills of Burgundy to the valley of the Loire. France has dominated the world of wine for centuries and is still No. 1, with $6.5 billion in sales. But the bouquet is fading. The almost medieval system of small, family-owned vineyards is struggling to survive. Huge conglomerates from Australia, California, and elsewhere are outflanking the French. They're spending millions to create consistent brands recognized around the world, while Gallic winegrowers are turning out too much low-quality table wine with mystifying labels.

Sure, swank restaurants in New York, London, and Tokyo still stock their cellars with the great French wines. But ordinary consumers don't have the patience to wait for fine Bordeaux wines to mature. They prefer the light, fruity flavors of low-price wine offered by producers in California, Australia, and Chile. These New World vintners are cleaning up in the markets that count: North America, Northern Europe, and Asia, where wine consumption is growing steadily, particularly of bottles under $15, while the generic French wines from places such as Quinsac are losing sales. "We are in the front lines in the fight against Australian and American wines," says Thierry Berthelot, commercial director of the Quinsac Wine Cooperative. Overall, French wine exports fell by 5.4% in value last year, to $4.6 billion, and millions of liters of unsold wine are sitting in cellars. France's market share in the U.S. has slipped from 7% to 5% in the past three years, while Australia has tripled its sales since 1995, grabbing almost 3% of the market, estimates Motto Kryla & Fisher LLP, a wine industry consulting firm in Napa Valley.

It's the latest chapter in France's ongoing and mostly losing struggle to balance its artisan traditions with the demands of the global market. Big distributors working with supermarket chains want to have reliable wine producers supplying them. Brewers and liquor companies, with deep pockets and marketing reach, are buying up winemakers. Within the past year, a series of takeovers and mergers has created new multinationals. Australia's beer baron, Melbourne-based Foster's Group, bought America's Napa Valley-based Beringer Blass Wine Estates last October for $1.9 billion. In February, Australia's Southcorp, owner of the prestigious Penfolds and more budget-minded Lindemans brands, forked out $725 million to take over family-owned premium winemaker Rosemount. "We've converted from being a cottage industry into a competitive consumer luxury-goods industry," says R. Michael Mondavi, chairman of Robert Mondavi Corp. (MOND ), the world's ninth-largest winemaker with more than $500 million in annual sales (table).

During viticulture's Big Bang, France has stood sulking on the sidelines. Of the world's 10 largest wine companies, only one today is French. While three Australian companies dominate 80% of their home market, Bordeaux alone boasts 20,000 different producers. With the exception of isolated joint ventures such as Baron Philippe de Rothschild's with Mondavi in Chile and California, French wine companies remain provincial. Bordeaux growers find it difficult to cooperate even with Burgundy or Côte du Rhône producers. "We stick to our own home regions just when we must begin to compete in a universe of consumers who dress in Nikes, eat Big Macs, and drink Coca-Cola," laments Jacques Berthomeau, author of an 81-page critique of the French wine industry published on July 31 by the French Agriculture Ministry.

Gallic tempers are rising as the bleak scenario unfolds. Angry winegrowers in the Mediterranean region of Languedoc ransacked highway tollbooths last March, demanding higher prices for their grapes. As wine revenues evaporate, southern France is on edge. A year ago, French cheese farmer Jose Bove won widespread popular support by destroying a McDonald's outlet in protest against U.S. sanctions on Roquefort. This spring, French winemakers derailed an attempt by Mondavi to create a sprawling vineyard in the same Languedoc region. "Each bottle of American and Australian wine that lands in Europe is a bomb targeted at the heart of our rich European culture," says grower Aimé Guibert.

GENERIC FLOOD? Some serious wine lovers--and not just French firebrands--sympathize. Jeffrey Davies, an American wine merchant based in Bordeaux who scouts out producers of small amounts of outstanding wines, worries that the globe will soon be flooded with generic Chardonnays and Cabernet Sauvignons. He yearns to preserve a world in which a Chardonnay produced in Chablis in northern Burgundy tastes drier than a rich, buttery one produced less than 100 miles south in Burgundy's Côte d'Or. "We shouldn't lose these differences," Davies insists.

But surviving, much less thriving, will be difficult for the French if they don't wake up to changes in drinking habits, even at home. Few natives still take three-hour lunch breaks, and fewer still down a petit coup de rouge at mealtime. The average French person today drinks just 14.5 gallons of wine a year, down from 26.5 gallons in 1960. At the same time, consumption has soared elsewhere, doubling in the U.S. and tripling in Britain. "To many young consumers, tasting cherry and blackberry in a Cabernet is a wonderful thing," asserts Richard Sands, president, chairman, and CEO of Constellation Brands Inc. in Fairport, N.Y. His company has swelled to $700 million a year in sales by recognizing that the palates of consumers who have grown up on soft drinks and Snapple may need coddling.

Constellation's breakthrough product? Fruit-flavored wines, such as Chardonnay with peach flavors sold under the Arbor Mist label. While purists are appalled, the launch of the "pop varietal" in gently curved, frosty bottles has spawned a raft of competitors and has been credited by retailers with creating a new class of wine drinkers. Today, Arbor Mist and E. & J. Gallo Winery's Wild Vines sell 7 million cases a year, exceeding U.S. imports of midtier French wines.

Even in Britain, Bordeaux' earliest foreign market, the spread of wine drinking beyond the upper classes has meant a switch to American, Australian, and Chilean wines. France's exports to Britain plummeted 16% in value last year. "French wines can be very acidic, while the New World ones are younger and easier to drink," says Fiona Hughes, a 35-year-old buying a bottle of Chilean Cabernet Sauvignon at Berry Bros. & Rudd wineshop in central London.

New World producers enjoy many advantages over France. Australian, American, and Chilean winemakers work in steady, hot climates that produce regular harvests and consistent wines. Bordeaux and Burgundy producers must deal with unpredictable weather--resulting in variable vintages--and heavy-handed regulators who control the amount and type of vines they can plant. Strict regulations discourage innovation. Many New World wineries have begun adding oak chips to wine that is fermenting in steel barrels. It's a cheaper way of imparting an oak taste without going to the expense of aging the wine in barrels. In France, that technique is illegal. Irrigation, too, is banned in most of France. "It's like playing rugby when the Australians can pass the ball forward and we can only pass it backwards," complains Jean-Marie Chadronnier, CEO of one of France's largest wine producers, CVBG Companie des Vins de Bordeaux et de La Gironde.

When it comes to marketing, the playing field is even more unequal. In Britain, Bordeaux merchant Chadronnier says his $150 million-a-year company can afford only two salesmen. Southcorp, with $540 million in sales, employs 50. Gallo, the world's largest wine company, spent more than twice as much last year on advertising and promotion in Britain as the entire Bordeaux wine industry, according to the recent French government report. Rather than cooperate, the French often fight among themselves for shelf space. "The people in Bordeaux see Burgundy as the competition," says Victor Motto, partner at Motto Kryla & Fisher. "The people in California see the world as competition."

KUNG FU CACHE. The New Worlders are succeeding by injecting pizzazz into the stodgy, snobby wine industry. American vintners have vied with one another to open the most lavish hospitality centers, complete with everything from visiting chefs to aerial trams and art collections. This year, Mondavi opened a "demonstration vineyard" in Walt Disney Co.'s (DIS ) new California Adventure theme park that features not just the vineyard but a movie theater and three tasting rooms. Most French châteaux don't accept visitors without an appointment--and even then, all that most have to show is a musty cellar.

The Australians are using star power to attract new wine tasters. Kung fu star Jackie Chan has flogged Lindemans in Asia, and Australian golfer Greg Norman has teamed up with Foster's Beringer to sell Greg Norman Estates wines. In the year and a half since it was launched, the Norman line has become the 10th most-popular Australian brand in the U.S. and sold a respectable 170,000 cases worldwide last year. "It makes a mockery of all the history and the heritage and the 100-year-old vineyards and wonderful châteaux," says Beringer Blass Managing Director Terry Davis.

The Australians and Americans are demystifying wine in other ways, too. Compared with French labels, some of the best-selling Aussie brands--Wolf Blass, Penfolds, and Rosemount--are easy to read and remember. What's more, Australian labels tell you exactly what grapes you're getting--a Merlot, Cabernet Sauvignon, or a Chardonnay.

In contrast, the French system of labeling by geographic origin rather than type of grape results in widespread confusion. There are 450 different AOC (appelation d'origine contrôllée, or registered origin names). Connoisseurs study for years learning to distinguish between the wines of Burgundy villages such as Vosne-Romanee and Gevry Chambertin, each of which boasts dozens of growers, many bottling their own wines of vastly different quality. "Everyone agrees that we have to simplify the offer," says Allan Sichel, president of the Bordeaux merchant house Maison Sichel.

But vested interests resist change. Bordeaux classifications of top-ranking châteaux were made in 1855, and only a single alteration, adding Château Mouton Rothschild to the elite club in 1973, has been made since. "About 500 wines have a classification, and they rake in money while the rest, no matter how good, struggle," says Daniel Cathiard, owner of Château Smith Haut-Lafitte, which was left off the 1855 listing. Generic Bordeaux wines from places such as Quinsac don't have a classification and have no chance of achieving one.

The global wine gang can produce large quantities using single grape varietals grown almost anywhere and sold under recognizable brands such as Rosemount's Shiraz and Lindeman's Bin 65 Chardonnay. And they can ensure consistency by blending grapes from different regions. A hailstorm in Monterrey? Mondavi can ship in grapes from fields around nearby Santa Barbara. Even as the economy weakens, the new wine giants use their financial strength to win market share from poorly capitalized French competition. Mondavi increased its marketing budget by 40% this year. "When there is a concern in the economy, people are afraid to buy Château No Name and they come back to the names and the brands they can trust," says R. Michael Mondavi. California winemakers such as Gallo are even pushing its wines in France.

Large marketing budgets are crucial, particularly as most wine no longer is bought in specialty liquor shops. Supermarkets sold almost half of the wine in America last year, up from a quarter in 1987. In Britain, big retailers such as Tesco, Sainsbury, and ASDA sell more than 70% of all wine--and their buyers favor suppliers who can provide large volumes, something the French cannot. "When you get to the more esoteric French lines, they are not so accessible to the average drinker," says Nicki Clowes, a Tesco wine buyer.

DRY VS. "LUSCIOUS." Marketing types are working to take the guesswork out of wine buying. New York's Best Cellars Inc. organizes about 100 carefully selected $15-and-under entries not by country of origin or style but rather in eight groupings with names like "fizzy," "soft," "luscious," and "big." The concept has helped it expand into Boston, Seattle, and Washington.

Will the French have to resort to such gimmicks to stay in the game? Maybe not. If they can create a range of offerings at different prices around their world-renowned labels such as Château Margaux and Château Cheval Blanc, the elite Châteaux could become like the couture houses, expanding their brand to lower-priced but quality vintages. The Australians are already moving that way. A new drinker can start out with an $11 Penfolds Koonunga Hill, say, and work up to Grange, which goes for $180 a bottle. Southcorp CEO Keith Lambert likens selling wine to selling cars: "People don't remember if it's an E-class or an S-class Mercedes, they just remember it's a Mercedes."

But most Bordeaux barons refuse to sully their images. There are almost no ties between the successful top-line growers and the troubled midmarket producers. "We must concentrate on our field of excellence and not spread ourselves too thin," says Paul Pontallier, chief winemaker at Château Margaux. One notable exception: Rothschild uses the $180 Château Mouton Rothschild as the flagship for the more modestly priced Mouton Cadet.

More defections may be coming. Some French are disregarding AOC rules and labeling their bottles as table wines. This allows them to plant the grapes they think will produce the best product. Grower Dominique Becot deemphasizes Saint Emilion, putting the locale in small letters on his label, but his critically acclaimed La Gomerie still sells for over $100 a bottle. Even in marketing, the French are waking up. The Bordeaux Wine Board has doubled its ad budget in Britain in the past two years. A new campaign features a sexy model dressed in red velvet lingerie hovering over a muscular man. "Let the mood take you to Bordeaux," reads the caption.

But advertising alone won't do the trick. Thousands of acres of inferior vines must be ripped up. Hundreds of the 872 French cooperatives must merge or shut down. Bordeaux merchant houses must start cutting deals not only with their Burgundian brothers but with New World partners.

Ground zero is the hot southern swath of the country called Languedoc-Roussillon. It produces 9% of the world's grapes and a third of France's total. Massive overproduction of poor wine has been subsidized for years. For a long time, the European Union bought up the region's unsold wine and distilled it into industrial alcohol. Even though farmers were paid to tear up their vines, the flood continues, and an even more painful shakeout looms. Hundreds of millions of liters of unsold Languedoc wine already are stored in cooperative cellars. This year's harvest could triple that amount. "I just don't know how we are going to sell it," admits Jacques Bonnier, director of the cooperative in the village of Aniane.

Both the EU and the French government will come under pressure to fork over handouts to struggling vintners and to push for quotas on New World imports. That would surely be a mistake. New competition certainly will force French winemakers to improve, and even some in the wine Establishment welcome such a change. "When I see Gallo trying to sell wine in Paris, I celebrate because it's the only way to wake us up from our slumber," says Philippe Capdouze, president of the Bordeaux wine merchant house FICOFI. And a better bottle of Bordeaux, even if it's picked off a supermarket shelf, would be something just about everybody could celebrate.

By William Echikson in Bordeaux, with Frederik Balfour in Sydney, Kerry Capell in London, Linda Himelstein in San Mateo, and Gerry Khermouch in New York

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